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Mike Khouw's United States Oil Fund LP Trade

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On CNBC's Options Action, Mike Khouw And Carter Worth spoke on the show about future price action in United States Oil Fund LP (ETF) (NYSE: USO).

Worth compared on a chart crude oil and the energy stocks and concluded that there is a wide spread between them. The spread shows that the stocks performed much better than crude oil and there were not many occasions in the past when it was so wide. Worth believes that crude oil is going to move 10 percent higher and catch up with the energy stocks.

Khouw wouldn't buy crude oil at its current price, but he is inclined to think that it is better set up for a bounce than for a sharp decline. He suggested a risk reversal options strategy to make a bullish bet in United States Oil Fund LP (ETF).

Khouw would buy the January 32 call option for $0.60 and sell the January 28 put for $0.70, collecting a premium of $0.10. If the United States Oil Fund LP (ETF) trades below $28 on January expiration he would have to get long at that price level, which is roughly an equivalent of $70 in crude oil.

 

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Posted-In: CNBC Mike Khouw Options ActionMedia Trading Ideas